market capitalism is the best path to prosperity. ted kennedy is laid to rest. now the focus is on who will replace the liberal lion in the senate? steve handelsman has the full report. hello, steve. >> thanks. >> reporter: good evening from washington. massachusetts will have a liberal senator. that's a given in one of america's most left-leaning states. who will it be? when will they be seated? those are the big questions. ted kennedy himself asked that state law be changed to allow his temporary replacement. his interim successor to be appointed by the governor, which is not now permitted in massachusetts, though it is in most states. massachusetts governor today said he favors that and the state legislature set hearings for september 9th to consider changing the law to let's patrick pick an interim senator. but patrick also said january 19th is the day of a special election to elect the senator who would then serve out the three years left in ted

kennedy's term. among those said to be possibles for the appointment -- and the interim election are joe kennedy, the former congressman, ted's nephew. and ted kennedy's widow, vicki kennedy. though governor patrick said that victoria kennedy said she's not interested in the job. now all of this matters to those of us who are not from massachusetts because without either an interim successor or until the special election in january, the democrats are down to 59 votes. one vote shy of that supermajority that would allow democrats in the health care debate or for that matter in any other debate -- but health care is all that matters now here on the hill -- to cut off the debate. the anti-filibuster vote. whether they get a special appointment, that's the big question. will they get somebody to sit in for ted kennedy between now,

let's say the end of september, if the state legislature of that liberal state changes the law and allows patrick to pick a democrat and a "yes" vote on obama health care. or will the democrats here on the hill and people back home in massachusetts, have to wait until january, even february, to have somebody fill ted kennedy's seat? that's the big question and it could maybe impact the health care vote and the plan we get for the country. >> the health care vote is the most important economic vote and probably the most important social vote. but senator ted kennedy's last days wanted a immediate replacement. i want to ask you it sounds like what the governor said is they are punting. they can't make up their mind because there's a revolt against switching the systems for such a short-term purpose. >> first of all, it makes them look terrible. they know that. i talked to some senior massachusetts democrats. i was up in boston for the funeral. they kind of hang their heads and say, maybe we'll try it but

there's not much appetite for it. when you hear top democrats say that, they can say we don't look like we're political in the wake of ted kennedy's passing. and there's also the big question of whether it will really matter that much. if the health care vote is so close that you've got to cut off a vote where 59 votes aren't enough but 60 votes would be enough, what does that say about health care? it's supposed to be a bipartisan thing. >> we are going to discuss that. steve handelsman thanks ever so much for your report. during the congressional recess, august has turned out to be a very rough month for president obama and the democratic party. it could become tougher as we run up the next year's mid term congressional elections. polling shows that gop congressional candidates lead democrats by a 43-38 margin. and have done so for nine straight weeks. a number of democratic-leaning

pollsters are seeing similar results. let's talk about it. joining me, charlie cook, editor and publisher of "the cook political report." and scott rasmussen. thanks for coming on. i want to read your quote from politico.com, experts see double digit democratic losses. you say the situation this summer has slipped completely out of control for president obama and congressional democrats. charlie, you are an expert with a great track record. why has it slipped out of control? >> i think there's a sense of -- a lot of things. in some ways i think president obama is seen as having outsourced domestic policy to speaker pelosi and the majority leader rarely reid aharry reid. you see his numbers in leadership have taken a plummet

and in retrospect, they probably overestimated the public appetite, given the economic anxiety and the takeovers of auto companies and banks, the public appetite for a hugely expansive governmental change -- but the democrats, particularly ones from swing and moderate districts, they got pounded. since they've gone back since the august recess. they are getting hammered and they'll come back, i think, very reluctant to sign on to ambitious change. we'll see something way scaled back from what the president and congressional democrats had hope before i bring in scott -- >> nate silver, the left-leaning democratic po iic pollster but a great track record. he says that the republicans could win between 20 and 50 seats next year.

that's a big number. >> what you have is a couple of things. number one, even regardless of how president obama, congressional democrats are doing, you don't pick up 54 seats in the house of representatives and in back-to-back elections and no be ov overexposed. think of the election environment that this democratic majority was built in 2006, 2008, it's like a greenhouse for or kids or tropical plants. perfect conditions. the soil, water, sun and temperature. in 2006, you had a bunch of -- you had iraq and a whole bunch of scandal s and it was te perfect environment for the democrats to capture the majority. and then residual iraq and bush fatigue and then the economy at the end. democrats built this majority under absolutely optimal circumstances.

those circumstances don't exist today. you've got a lot of democrats sitting in republican-leaning districts. even under optimal circumstances they would probably lose 10e or 15. if it could not be too bad and lose 20. i don't think it's going to be the 40 that would be the tipping point. could it? absolutely it could. >> i remember a long time ago in 1994, it started small. 15 to 20 and then it kept growing. scott, it seems to me -- and i'll ask you -- a revolt, independents are revolting? conservatives and republicans? bailout nation, government takeover of health care. federal bj and unbelievable debt problems and new debt creations, scott. are these if key themes? >> sure. people are frustrated. they are frustrated with the economy as a starting point. they strongly oppose the bailouts from the bush administration last year. they strongly oppose the takeover of general motors and

chrysler and they were wishy washy on the stimulus package. even the majority of taxpayers didn't like the idea of the "cash for clunkers" program that went through and all of these things happened. now that the health care debate is front and center, people are saying, we want someone to listen to us. that's where things have come to a head for the administration, the reason the health care bill has become so contentious. looking ahead to 2010, the democrats have one thing going for them that they didn't have in 1994. that's that in 1994, nobody could remember when the republicans were in charge of congress. people could say they couldn't possibly do any worse. still, today there's some residual from when the republicans were in charge and that makes it a little tougher for the republicans to gain the sweep that you might enjoy. >> but scott, let me ask you, it seems to me one of the great silver bullets that helped to shoot down the government takeover of health care and the so-called "public government

insurance policy" which people don't seem to want, was the congressional budget office saying, you'll spend a trillion dollars. you're not going to cut a trillion dollars. and last week, the omb from president obama's budget office said the debt in the next ten years will go up by $9 trillion. all right? these are shocking numbers, suggesti suggesti suggesting bankruptcy even if the country recovers, don't they think america can't sustain that? we're putting out so much debt and borrowing that we're on the virge of bankruptcy? isn't this part of the fiscal, financial, economic revolt? >> it is. by the way, a more basic point pl all throughout election 2008, when people talked about health care reform it wasn't dominant but it was part of the discussion. people thought, we have to control costs.

the minute they said it will cost an extra trillion dollars, that was a wake-up call. people said, we were for the reform that would save us money. people see the deficit as the top priority of all the things outlined by the president. 40% want deficit reduction. way down the list is health care reform. 21% see that as a top reform. and then, the skepticism factor comes in. the deficit reduction is a top priority but also the one that people think is least likely to be achieved. >> charlie cook, there's a gallup poll out a week ago that says conservatives have the majority across the country. you probably saw it. i think the numbers, more or less, in all 50 states, conservatives, not republicans, just the word "conservative" independents or whatever we call them, independents, 35%. liberals, something like 25%. it was interesting. statistically significant numbers in all but three states.

what's your take on that? is there a conservative counter revolution developing? >> i guess i would have two points. the term "liberal" has become so discredited that even people who we would call -- most people we call liberals don't claim the tag. they just kind of walked away from it or used "progressive" and other terms. in years when democrats are winning big, the number of people that identify themselves as conservatives outnumber the number of people that call themselves liberals which suggest ta labels don't mean much. having said that, i think you're seeing -- and we've underappreciated how skiddish voters are see lehman brothers defaulted and the market plunge last september and you had these governmental takeovers -- there's an intensified fear about the expanded role of government that i think last expanded beyond

conservative. >> i think so. my other point, charlie, is to get your take -- the issue of fiscal bankruptcy. i think that looms very large on top of your point about government control of the economy. charlie, what do democratic house members from red states do or democratic house americas from districts that john mccain carried? aren't they the absolute most vulnerable? i don't know what the number is. perhaps you can tell us. >> they are the most vulnerable. we're tracking different levels, sort of like the political equivalent of stress tests. what would happen at certain levels. these folks know who they are. the interesting thing is, if you look back to 1994 when democrats lost control, the bulk of the losses were in open seats and among people who voted for both of the clinton -- key clinton votes. and not so much from people who voted against them across the board. these guys know who they are.

>> charlie cook, thank you ever so much and scott, as always thanks. coming up, new york fed head bill dudley says he's not worried about inflation exit strategy. with all due respect to mr. dudley whom i've known for many years, i believe he ought to be sweating bullets. and coming up tomorrow night, bad loans are piling up. hundreds of banks are in a government sick list. what does that mean for the banking system? and the federal deposit insurance corporation? i'll have a little chat, one-on-one with fdic chair, sheila bair to see if she has the money to insure your deposits. we're the kudlow report we'll be back.

new york federal reserve bank president, william dudley tell us he sees growth in the u.s. economy by the year's end and isn't the least bit worried about inflation.

here's our senior economic reporter, with a full report on his exclusive report. hello, steve. >> reporter: thanks, larry. bill dudley said in our interview an economic recovery is under way. but saying it's too early for the fed to worry about inflation and cutting back on programs because the economy remains too fragile. >> it's a little bit premature to be so confident you want to pull all these things back right now because the economy isn't growing very fast. we do have a very high unemployment rate. even with recovery we could see the unemployment rate drift up further. there's a lot of slack in the economy. i don't think the anxiety about inflation is something that's going to be a substantive issue over the near term. >> he also acknowledged mistakes made by the fed when it came to regulating the banks during the credit bubble but said steps have been taken to make sure it doesn't happen again, including

adding new board members. >> could we have done better? absolutely. on the supervision side, we could have been tougher we could have been smarter. a lot of his confident is on the new instrument, the ability to pay interest on reserves. a high enough interest rate should induce the banks to keep their reserves on tap and not lend them out. larry? >> thanks very much. great interview. i've known bill dudley for many years and have high regard for him but i have to express my concern. i don't agree with his idea that high unemployment and a sluggish economy is sufficient to hold down inflation. i would prefer that we focus on some inflation-sensitive market price indicators that tell us about the amount of dollars we are creating, and whether they are chasing too few goods. let me begin with gold. if you look at this, this is a 30-year chart of gold that i have here. i want to note, the peak in gold

around 1980, the drop in gold for 20 years, paralleled the decline of inflation. in the past ten years, the gold price continues to rise and is now hovering just under $1,000. that is higher than it was at the top of the 1970s inflation scare. that's not a good thing. similarly, we're seeing chronic weakness in the value of the u.s. dollar. that becomes a problem. again, we are, today, just about at the low ends of a almost 45 or 48-year range. and you can see a chronic decline in the last ten years of the value of the u.s. dollar against major currencies around the world. these are warning signs that if our money value declines, purchasing power falls, inflation goes up and that damages consumers as well as

businesses. this chart may also surprise you. yes, we know with $150 a barrel of oil, roughly one year ago, the consumer price index on a 12-month basis has dropped. it's down to minus 1 pain 5 or 2%. but get this, folks. on a year to date basis for the seven months of this year, 2009, the inflation rate has recovered to 2.4% at annual rate. so it is turned around enormously. that should give people at the fed some pause that it's too soon for an exit strategy. and finally, on the sluggish economic growth, we ought to be growing at 7 or 8% in this recovery coming out of a deep, deep recession. we won't. i think we'll probably grow at 2, 3 or 4%. but look at today's chicago purchasing managers. that's a heartland indicator. it had a big rise once again,

and you are looking at a v-shaped recovery on the chicago manufacturing report. that tells you something's going on in the economy. it does suggest a v-shaped recovery. maybe 4% growth for the next three or four quarters. who knows. tomorrow we get the ism manufacturing index and that's likely to turn above 50% for the first time in i don't know how long. another signal of a stronger than expected recovery. so i say to mr. dudley and my friends at the federal reserve. you should be keeping your eyes out for market price indicators like gold and the dollar. don't be fooled by the consensus that says it will be a terribly sluggish or a double-dip recession. you may be surprised. you have a lot of money supply in the system. if the turnover of money stabilizes or recovers inflation could jump up several percentage points in the next couple of years. that's my warning. coming up, bailed out banks

and profits for taxpayers? you know what, a huge chunk of this money may never be repaid. we'll debate was tarp a winner or a loser from the american taxpayer and the economy? jerry boyer and tony fratta will debate after the break. there they are. it's boyer's birthday. that's why he's smiling. stay with "the kudlow report." i'm not saying inflation will be huge, but i'm saying federal reserve has to act one to two years ahead. and that is their challenge for a significant exit strategy that will work for prosperity.

he's a hall of fame quarterback who scored a 22-pound weight loss thanks to nutrisystem. he's a legendary linebacker who's tackled his own weight problem by dropping 35 pounds with nutrisystem. so, who's the winner... at losing weight? listen here, twinkle toes, you're going to need some new dance moves, buddy, if you're going to take on dan marino. dan marino? what did he play, kickball? i'm feeling lean, i'm mean, and i still look good. order now and you can get an extra three weeks of meals free. 22 pounds. 35 pounds. show-off. loser. nutrisystem is so easy, anybody can lose weight. i'm curt menefee, and i lost 56 pounds on nutrisystem. so, who's the winner now?

order now and you can get an extra three weeks of awesome meals. that's 105 meals free. call or click now.

house financial finance chairman wants a complete audit of the federal reserve. we have the full report. hello, hampton. >> reporter: good evening, larry. house financial chairman, barney franks sees this in the future. half members have signed on as co-sponsors on a bill to allow the gao to audit federal decisions, curbs on fed lending authority may be coming. in an exclusive interview, new york fed president, bill dudley says, oversight, yes. but not at the expense of monetary independents. >> if it starts to do that, how will the financial market participants react? they are not going to be too

happy about that. interest rates will rise and that will be bad for the economy. >> reporter: nothing in writing but negotiations continue. democrats hope to approve a regulatory reform plan in october. larry? back to you. >> thanks very much, hampton. big story, front page. front page of today's "new york times." taxpayers are starting to see some cold cash from banks that are repaying their government bailout money. but a huge chunk of this t.a.r.p. money may inform been repaid. rets debate. was t.a.r.p. a winner or loser for american taxpayers and the economy? here to square off, contributor and columnist jerry boyer and tony fratto, former white house deputy press secretary. let's put numbers on the board. here's the t.a.r.p. paid. this is the capital purchase. there's good payments going on you can see, between paying down the loans and the stack warrants. amx, 23% return.

goldman sachs, 20%. morgan stanley and northern trust and bank of new york and so forth. on the other hand, to be balanced and fair, let's look at t.a.r.p. unpaid numbers. aig, 70 billion. fanny and freddi, close to 100 billion. mortgage foreclosure modification relief, 50 billion. gm and chrysler, 80 billion. it looks like there may be another couple hundred billion dollars in that parcel. tony, right now, you're in the bush administration with president bush and treasuryman paulson when the t.a.r.p. policy was made. are you ready to crow about success or will you acknowledge that there are still some unanswered sums? >> there's still some unanswered questions, larry, but absolutely no question about the success of the t.a.r.p. program. going back a year ago in september of 2008, it was, you know, stuff out of the book of revelations.

banks were failing. money market freezing up. credit was frozen. this was ry bad and the future of the u.s. economy was at stake. every dime that went into t.a.r.p. in the core of the t.a.r.p. program, the capital injection program and some of the fed programs to inject liquidity unquestionably, saved the financial system and that was good for the country. >> i'm going to say, jerry, tony is really dwelling and i think the best part -- you have to give henry paulson some credit -- the so-called capital purchase plan. city is still outstanding and bank of america is also outstanding. but jerry, t.a.r.p. was large three the end of bush and early obama, and sudden lir we were guarantees with huge taxpayer sums automobile companies, for example. and then adding on to fanny and freddi, fanny and freddi alone, $100 billion.

will that get paid back? >> no. and neither is the auto money. the bank will pay it back. the market-to-market accounting really was distorting the market. tony says it looks like something from the book of revelations. i think it's more from genesis. the original sin of our crisis was t.a.r.p. if you don't have t.a.r.p. you don't have the bank tore auto bailout or bank nationalizations. the auto nationalizations. the pay czar. the car czar and you probably don't even have the stimulus bill because the stimulus bill was sold as wall street got theirs. now main street is supposed to get theres, so tarn was the original sin. >> tony, your response. >> i i mad a good discussion about this. i think it's wrong. look at what happened to lehman brothers, that had nothing to do with t.a.r.p. we saw the carnage that happened. >> it had to do with market-to-market accounting.

the layman write down what was a market-to-market. it come into effect in november of 2007. >> the fact of the matter is, there were huge capital hold there is and you can't hide them. and market-to-market, any way you want to put it, it doesn't hide the fact of the capital holes in the bank. >> market-to-market created the huge capital holes because it forced write-downs when there wasn't really a need for write-downs. at the time, it was top of the market and the bottom which is in april, when they suspended the market-to-market. >> i think most, if not all the bank money, will be paid down. i don't know about aig. i don't know about that. okay? but here's what i think i do know. i want to ask you because i think the president is very, very worried about this.

the government owned fannie mae and freddie mac. that's a bottomless pit. whatever money we make from the banks repaying the taxpayers, we'll lose it on fanny and freddi, are we not? >> i won't disagree with you. that's why we tried to reform freddi and fanny for eight years and were rebuffed by congress. the taxpayers will always be on the hook for this. it was going to happen either sooner or later. >> gm didn't have an implicit government daernt. why do we have to be on the hook for them? >> i don't want to either. that's a political decision. that was not part of the financial rescue. i know that t.a.r.p. was used as a piggy bank but congress would have found that piggy bank one way or the other. it was convenient that the t.a.r.p. money was there but congress was not going to

allow -- >> when you create a piggy bank with $700 billion in it, congress is going to -- >> think about this. if you don't get fanny and freddi back, the well could deepen. it could wind up being 2 billion and if jerry is right about general motors and chrysler and lord knows what else. at the end of the day the banks may repay the taxpayers a couple hundred billion with interest from the warrant, but the taxpayers may wind up on the short end of the stick for 4, 5, 600 billion and on top of that you have the enhanced government control. economy is setting a bad precedent. >> and the trashing of the republican brand. >> i think it's an awful precedent but it's the thing you have to do when you're in a crisis. there's not other way to deal with it when your house the burning down. on aig and fanny and freddi, gm, i'm right with you. but those costs were going to come one way or the other. in the case of aig, they were so

intertwined in the u.s. economy and global economy, the taxpayer never gets another dime back, it was still better than the alternative of letting aig fail. >> jerry, let us not assume citibank is going to do it. i don't know. maybe they'll pay it back. there's still some outstanding. jerry, at the end of the day, what's the biggest thing you worry about with the t.a.r.p.? >> that it's trashed the republican brand for years to come and the free market conservatives apply getting blamed for something the government did. >> we'll leave it there. happy birthday, by the way, jerry boyer. we won't name a number. >> 47. >> 47, he doesn't look a day over 35. tony, you don't look a day over 35. you're kind to come on. i don't know, man, i've never been a being fan of t.a.r.p. and i'm still not. thank you for helping us. meanwhile, stocks hold the high ground for august up over 3%. we'll go inside the month's market action.

and talk to prominent investor. i'll call him famd investor. he called the march bottom and now he's calming a market top. you do not want to miss this. stay with "the kudlow report." we're coming right back. tools are uncomplicated? nothing complicated about a pair of 10 inch hose clamp pliers. you know what's complicated? shipping. shipping's complicated. not really. with priority mail flat rate boxes from the postal service shipping is easy. if it fits, it ships anywhere in the country for a low flat rate. that's not complicated. come on. how about...a handshake. alright. priority mail flat rate boxes only from the postal service. a simpler way to ship.

are working from the road using a mifi-- a mobile hotspot that provides up to five shared wi-fi connections. two are downloading the final final revised final presentation. - one just got an email. - woman: what?! hmph. it's being revised again. the copilot is on mapquest. and tom is streaming meeting psych-up music - from meltedmetal.com. - ( heavy metal music playing ) that's happening now with the new mifi from sprint-- the mobile hotspot that fits in your pocket. sprint. the now network.

click today.

a major media merge her hollywood. disney is buying marvel entertainment. julia has the full report. hello, julia. >> reporter: thanks, larry. the $4 billion stock and acquisition of marvel entertainment gives disniece the movies and likenesses. the 5,000 characters, spiderman, and x-men which 20th century fox licensed. >> we intend tully no not only use the marvel brand but to use our distribution and our marketing platforms globally to help grow the brand. >> reporter: disney expects them to boost earnings per share saying that this should benefit all platforms. marvel, the deal priced at a 30% premium from friday's close. now we'll see which licensing deal, like fox and sony and disney maintains and how long it will district the films through

paramount. >> thanks very much. stocks had a small pullback today on the last day of august after one heck of a strong month for the month of august and the summer. that, by the way, despite today's good news and a strong chicago purchasing manager, bertha couples has the report. >> bertha, i thought you did very well holding up the market. >> i wish it were just me. i'd probably be a much richer woman. it's very interesting, the dow put in its best august since y 2 k but once again today, one of the themes we've seen this summer is as shanghai goes, so do go the world markets. it's a little bit of the tail that's been wagging the dog on hopes being pinned to the chinese recovery. when shanghai did overnight of better than 6% we saw the ripple effect starting with oil. oil closed the day down 4% over

at the nyse where i was today. but it was a fairly good month for oil, up about 50 cents. very volatile on the month. commodities were the hardest hit. metal and miners. and the energy companies as well. massy energy, one of the big losers on the s&p 500 on the day. baker hughs was a big loser but that was in part because of its acquisition of b.j. services. that was announced before the disney deal. a $5.5 billion deal. consolidation in that sector is something folks are looking for in the oil services sector. in the tax sector a couple of winners. e-trade financial, this stock is actually down quite a bit from two years ago the first leg of the financial crisis. but today it's one of the best performers on the s&p, after citadel cancelled its plans to sell a stake. and sequenom, there is

speculation it will pass and intel in the industry said that july sales were up nearly 6% from join although down 18%, year to day. and after hours we heard new news about apple. those folks who watched the latest gadgets coming from co cupertino, they are having an aents event to announce the new i-pod. i know it's only rock n' roll but i like it. maybe mick jagger will be there. >> if he has an i-pod? he probably does. i know you have several i-podding. thank you for your great report. i want to say that china and america's stock markets and economies are very linked. but it is worth noting in this summer rally which i mark from july 10th, the s&p 500 is up 16%. the shanghai is down 14%. so it is not always lost. coming up on the kuds low

report, famed investor, dougy katz is calling for a market top. we'll hear his important points and we'll also be joined by allison dooeds who will weigh in. stay with us. we're "the kudlow report." before we leave, let's check in with dennis kneil to see what he's cooking for the top of the hour. >> we're looking at fall. fallback or fall rally. we'll look at widely-held chip stocks. maybe september doesn't have to be the coolest month after all. >> we'll be back with doug and stay with us on "the kudlow report."

there are engines... and then there's the twin-turbocharging, 365-horsepower-generating, ecoboost engine in the all-new ford taurus sho that has the thirst of a v6 with the thrust of a v8. we speak car. we speak innovation. introducing the all-new taurus sho from ford. drive one.

almost 30 years behind the sports desk has turned me into somebody larger than life, literally. but those days are back-back-back-back-back gone! i'm chris berman, and i lost 41 pounds with nutrisystem. just order nutrisystem for men today to get four weeks of awesome food, and learn how to get three extra weeks free. let's go to the highlights. mike "all i ate was golic bread": down, 51 pounds. don "blue suede" shula: down 32 pounds. dan "glam man" marino: lost 22 pounds. guys, you can do this. you'll get four weeks of satisfying meals, for less than 12 bucks a day. that's 140 rib-sticking meals. my goal was 40 pounds, and look, he could...go...all...the...way! if i can lose the weight, you can lose the weight.

that's 105 meals free. call or click now. in march, the bottom market had a generational bottom. he was right. stocks are up over 50% since then. now he's saying market is topped for the year. we'll hear why in just a moment,

doug cass, president of sea breeze partner's management. and we're blessed to have alison deans, in private asset management and she has a few thoutsz on how the world works. dougy kass, thanks for coming on. >> how are you? >> dougy, if you can boil this down, what's the biggest reason. the single-most important factor in your call now that the market has topped? >> i believe that the consensus view now is that we're going to experience a shallow, but self-sustained economic recovery. and it's my view that this great unwind of debt, after a period of hocus-pocus borrowing and lending. 35-1 leverage, the economy is like lindsay lohan and britney spears. they were very cute as children. they got very ugly as adults. and neither of them are likely to have much of a comeback. and the problem is that the due bills which you described two

segments ago, of higher interest rates, higher inflation and higher marginal tax rates are going to particularly hurt the consumer. and i see more of a square root or a caterpillar economic recovery in the next two or three years where we have lumpy, uneven growth. sometimes it looks like we're coming out of the recession sequentially, the next kwouk could look like we're going back into recess. >> i appreciate that point of view. it's ironic in a sense, in terms of your great call last march, you're up about $4 trillion in strong market wemt after this enormous loss. i just wonder, could you be overestimating consumer saving which might not have to go to 7 or 10%? precisely because of the $4 trillion rise in wealth? and related to that, dougy,

there are data points and a number of distinguished economists who are looking for a virgin v-shaped recovery which is entirely different. can you give us a quick response? >> those are two great questions. you and i disagree. you're a believer in law of production. meaning that business is basically influencing consumer incomes and spending. i believe it's the other way around. there were two articles in "the new york times" on saturday, which, to me, respond very importantly, to your question. the first one was an article called reluctance to spend, maybe the legacy of recession. it ponders whether the risk is that the u.s. consumer shifts from that aspirational trend that we've seen for many decades back towards the legacy of the post-depression where we all try

to maintain our status quo. the second article talked about the 58-year-old man that was unemployed and made the case -- and we discussed this by e-mail over the weekend -- the number of americans 45 years or older is at the highest level in 60 years. i think this is a real governor to personal consum, expenditures and raises the specter of much higher savings going forward. >> alison deans, i want to get you in to respond to some of doug's controversial thoughts. he's talking about a double-dip and a market top and essentially, the end of the consumer. alison, make your case? >> i think the consumeer is going to start behaving a little bit better but i doubt we'll see consumer spernding the way they did in the 80s and 90s and early 2000. while unemployment is bad the

trends are leveling off. so confidence is improving and i think that makes the consumer start spending a little bit again. >> alison, with the fed at the back of this -- the fed is very stock-market friendly right now and it won't be forever, but right now. and the emergence of this? >> that's one of the reason us i think the market can go to 1100 and higher. i think we have another good year of good earnings results. revenue spends have been better than expected. and the cost-cutting has increased significantly. >> doug and alison deans, we'll be right back on the kudlow report to discuss this. be sure to tune in tomorrow. i have an exclusive interview with fdic chair, sheila bair. will the fdic insurance fund

remain solvent with enough money to protect you investors? meanwhile, we'll debate the future of the stock market. alison deans, doug kass, i'm larry kudlow, stay with us. ♪ wer a new car, ♪

♪ which one's me - a cool convertible or an suv? ♪ ♪ too bad i didn't know my credit was whack ♪ ♪ 'cause now i'm driving off the lot in a used sub-compact. ♪ ♪ f-r-e-e, that spells free credit report dot com, baby. ♪ ♪ saw their ads on my tv ♪ thought about going but was too lazy ♪ ♪ now instead of looking fly and rollin' phat ♪ ♪ my legs are sticking to the vinyl ♪ ♪ and my posse's getting laughed at. ♪ ♪ f-r-e-e, that spells free- credit report dot com, baby. ♪

two of the best of the best in the investment world, doug kass and alison deans, thanks for the great discussion. doug, in view of your outlines i'm interested in your policy worries. easy money, big deficits in borrowing, a chronically weak

dollar and higher tax rates. where do you invest right now? where do you hide? how do you play this period? >> alison makes the point and we can argue back and forth. she makes the report that the earning's cycle is so strong it will dominate the chronic problems which you describe and which concern me. what we can't debate, in my view, the emergency natural higher tax rates will serve as headwinds for the consumer corporate profits and economic growth. so i'm going to say that you stay away from anything retail related because personal consumption expenditures will disappoint and savings rates will be much higher than anticipated. i would suspect also on the positive side, that you want to own some inflation hedges. basic industrial stocks and energy stocks come to mind. >> so if you raise tax rates to reduce output but you keep pumping money, you get

inflation. alison, how do you react to dougy's strategy? >> i would address, near term i think there's a bit of a correction so pick your spot over the next couple months getting into the more commodity-based industrials. i think people should invest overseas. i think the dollar will be weak for the next several years sign vest in some of the emerging markets that are coming out. >> alison, with a very steep treasury curve, 350 basis points wide, anchored by a zero fed funds rate, which i think will last too long for my tasting with do you stay with the banks? >> my sense is, they are due for a bit of correction. i think they are starting to do the right things. they are cleaning up their balance sheets and shrinking their assets. i'd be selective about the names. i think jp morgan is a clear winner. stay away from citigroup which i think still doesn't have a clear vision and strategy. >> dougy in the last 25 seconds,

part of your great call last winter was banks and financials. where are you now? >> i'm still committed to the group, you wiit's bank of ameri >> what did you think tonight? charlie cook tells us the republicans have a shot at congress next fall? real quick? >> you know, i watched the kennedy proceedings. all weekend. you know where i stand. >> all right, buddy. i love your supply side worries about higher tax rates. you're gaining. >> i'm learning from you. >> doug, alison deans you've both helped enormously. coming up, more on "the kudlow report." we'll be right back tonight. he ran off with his secretary! she's 23 years old! - oh, come on. - enough! you get half and you get half.

( chirp ) team three, boathouse? ( chirp ) oh yeah-- his and hers. - ( crowd gasping ) - ( chirp ) van gogh? ( chirp ) even steven. - ( chirp ) mansion. - ( chirp ) good to go. ( grunts ) timber! ( chirp ) boss? what do we do with the shih-tzu? - ( crowd gasps ) - ( chirp ) joint custody. - phew! - announcer: get work done now. communicate in less than a second with nextel direct connect. only on the now network. , hard of hearing and an people with speech dischities accessac.sprintrelay.com. he's a hall of fame quarterback who scored a 22-pound weight loss

thanks to nutrisystem. he's a legendary linebacker who's tackled his own weight problem by dropping 35 pounds with nutrisystem. so, who's the winner... at losing weight? listen here, twinkle toes, you're going to need some new dance moves, buddy, if you're going to take on dan marino. dan marino? what did he play, kickball? i'm feeling lean, i'm mean, and i still look good. order now and you can get an extra three weeks of meals free. 22 pounds. 35 pounds. show-off. loser. nutrisystem is so easy, anybody can lose weight. i'm curt menefee, and i lost 56 pounds on nutrisystem. so, who's the winner now? order now and you can get an extra three weeks of awesome meals. that's 105 meals free. call or click now. she is the greatest thing ever. woman: one little smile, one little laugh.

- honey bunny. - ( coos ) we would do anything for her. my name is kim bryant and my husband and i made a will on legalzoom. man: it was really easy to do. - ( blows raspberries ) - ( laughing ) robert shapiro: we created legalzoom to help you take care of the ones you love. go to legalzoom.com today and complete your will in minutes. at legalzoom.com we put the law on your side. following our excellent discussion between alison deans and dougy kass, pullbacks notwithstanding and easy money fed and rising prices, they are bullish for stocks and there will be pullbacks along the way. i don't think the rally is over. but i share doug kass's concern about policy, overregulation, overspending, overdebt creation. somebody has to defend the value and quality of the american

dollar. it is at the heart of our entire financial system. alison deans said it herself. the longrun may creep up sooner than we think. that will be a large negative for both stocks and the economy and consumers and inflation and businesses. i still worry, this is a short-term bull call that i made a couple months ago. and yes, it goes back to early march. i can't, right now, say it is a long run call. that's my take. anyway, cnbc reports with my friend, denis neil begins right now.